By Satoshi Sugiyama

TOKYO (Reuters) – Interest Rate Hike Anticipation

The Bank of Japan (BOJ) is expected to raise interest rates to 0.50% at one of the two meetings this quarter, according to a majority of economists surveyed by Reuters. Most foresee a hike in January.

This move demonstrates the BOJ’s commitment to normalize monetary policy after years of accommodative settings, even as many global peers consider cuts.

Survey Findings

In a poll conducted from January 8-15, 59 out of 61 economists indicated the BOJ would raise borrowing costs to 0.50% by the end of March. Of those anticipating a hike within this quarter, around two-thirds (20) expect it at the January 23-24 meeting, while the remainder predict March.

Since the BOJ maintained rates in December, speculation has risen regarding the timing of the next hike, particularly due to uncertainties concerning domestic wages and the economic plans of incoming U.S. President Donald Trump, inaugurated on January 20.

BOJ Statements

BOJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino have indicated that the central bank will discuss potential rate adjustments at their upcoming meeting. Support for a January hike is bolstered by strong domestic wage growth and new price pressures, as noted by Ayako Fujita, chief economist at JPMorgan Securities.

Fujita mentioned that delaying the hike until March may increase market volatility risk if there is no significant turmoil following Trump’s inauguration.

Economic Indicators

The BOJ previously reported that wage increases are spreading across various sectors, indicating suitable conditions for a near-term hike. Following the conclusion of negative interest rates in March 2024, the BOJ last raised its policy target to 0.25% in July, showing readiness to act should wage and price trends align with predictions hinting at sustained 2% inflation.

Nearly all economists surveyed suggested a greater likelihood of inflation rising beyond predictions this year, with Harumi Taguchi of S&P Global Market Intelligence cautioning that the risk of a weakening yen exacerbates inflation concerns.

In terms of wages, the median prediction from economists for this year’s spring labor-management negotiations was 4.75%, reflecting a slight increase from previous assessments, yet below the last year’s 5.1%.

With growth and inflation aligning with BOJ forecasts and import prices turning positive year-on-year in December, the central bank must consider the implications of a weak yen, according to Atsushi Takeda, chief economist at Itochu Research Institute.

Concerns about import costs and inflation linked to the weak yen influenced the interest rate hiking decision. In the poll, two-thirds of respondents indicated that Japanese authorities are likely to intervene in the currency markets if the yen depreciates to 165 against the U.S. dollar, with nearly 20% suggesting intervention at 160 yen.

(Other stories from the Reuters global long-term economic outlook polls package)